Buy Coal India; target of Rs 425: ICICIdirect

ICICIdirect.com's report on Coal India

"The Coal Ministry has removed Coal India's (CIL) cap on e-auction volumes with effect from April 2015. The removal of this cap is likely to boost CIL’s profitability as auctioned coal fetches notably higher realisation (~80-90% higher) compared to notified prices. One of the key reasons cited for ministry’s move to remove the cap was the rising pit head stock of CIL. The company’s offtake for FY15 at 489.3 MT was lower than its output of 494.2 MT, resulting in pit head stock increasing from 53 MT at the end of FY15, from 47 MT during the end of FY14, owing to evacuation issues."

"We believe the removal of the e-auction cap augurs well for Coal India as it will aid in boosting the company’s financial performance. We have valued the stock at 7x FY17E adjusted EV/EBITDA (adjusted for overburden removal) and arrived at a target price of Rs 425 assigning a BUY recommendation. CIL has a strong balance sheet with robust cash flow and healthy liquidity position, which augurs well for the company. A healthy dividend payout and impressive dividend yield (~5.8% on a normalised basis) reiterate our positive stance on the company", says ICICIdirect.com research report.

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